Tony Arsta explains why the election won't affect how we invest.
Editors Note: Tony wrote this piece before Tuesday's election to highlight our long-term mindset. We haven't changed our minds.
“My visions of the future are always pretty much standard issue. The rich get richer, the poor get poorer … and there are flying cars.” -- Joss Whedon
Back in August, Bill Mann wrote about The Book of Predictions. This glimpse into the distant future was published in 1980, and Bill’s letter interested me enough that I borrowed the book and read through it. My initial gut reaction was disappointment. The book told me less about the future than it did about that specific moment in time when it was first published.
Sure, there were a few highlights. I especially enjoyed the part about nomadic tribes wandering the United States (which was separate from the many predictors calling for the dawn of a new Ice Age). The impending extinction of lima beans “because of disinterest” also made me smile.
But in large part, I was reminded that there was a very specific set of fears prevalent in 1980, and these fears sprang up again and again as I read the book’s predictions. Economic collapse would be brought about by sky-high inflation. An oil shortage was imminent and would only be solved by strict gasoline rationing. And of course we were gearing up for all-out war with the Soviet Union, which was certain to involve nuclear weapons. Each of these concerns was top of mind in 1980, so much so that many people who were well aware their task was to see the future could nevertheless only dwell on current events.
Not all of the predictions in the book were wrong, and some were quite prescient. But many were fleeting and would seem ridiculous in very short order.
What’s on your mind today?
As an investor, you know it takes effort to actively ignore the day-to-day movements of the stock market. But I know that’s what must be done to have any hope of achieving satisfactory long-term performance. Just as with those predictors in 1980, even attempts to look to the distant future are often interrupted by immediate concerns and daily unease.
This situation is especially prevalent during election season. Every four years, market commentators will try to suggest stocks or entire industries to “play the new president’s policies.” In 2008 we were in the midst of a rather memorable financial crisis that conveyed plenty of investment themes of its own, but there were also investment ideas widely recommended based on President-elect Obama’s stated goals. Infrastructure and clean energy, for example.
In 2012, President Obama announced a $200 million government commitment to a program known as the “Big Data Research and Development Initiative.” I happen to be a believer in the benefits of Big Data, but as far as I can tell, this government investment hasn’t really influenced the pace of adoption one way or the other.
The other big news item in 2012: the fiscal cliff. Remember that one? Anyone making long-term predictions would have been best served to simply ignore the existence of that momentary crisis.
I haven't been particularly concerned with the outcome of this year's election. I wanted to own high-quality businesses before the votes were cast, and I want to own high-quality businesses now. As Bill Mann wrote immediately after the Brexit vote, “Our advice to you, today, is to do nothing.” I think that’s excellent advice nearly every day.
The secret to accurate predictions
Back to The Book of Predictions. I’ve already criticized some of the bad predictions, but what about the good ones? What worked? The forecasts that were the most true were somewhat cheats. The best predictors would simply take trends that were already in their infancy and predict mass adoption. For example, a prediction of widespread acceptance of “flextime” work conditions sounds impressive for 1980 -- until you realize that the concept (and the term itself) dates to the early 1970s. Similarly, predictions about the increasing role of women in the workforce and the spread of personal computers were merely picking up on trends that had already begun.
If I were to employ this same trick today, I would make predictions about the rise in online shopping, streaming video, self-driving cars, and connected homes. I’d also look at the rising population in India, the aging population in much of the developed world, and the continued interconnectedness of society and all its devices.
It doesn’t seem like much of a prediction to say that people will regularly shop online in the future. But in 2015, online retail sales accounted for less than 8% of the total retail sales worldwide. Seeing the potential that companies such as Amazon.com have in front of them is relatively simple; holding on to an investment for the long term and ignoring current events and quarterly fluctuations can take a little effort sometimes.
We’ve made other investments based on some trends already in motion. We believe smartphone data usage will continue to increase for quite some time, and some of our investments could benefit from that trend. We believe both the developed and developing worlds will consume more disposable rubber gloves in the future – but we've found only one investment that could benefit from that particular trend so far.
We believe consumers will want to continue borrowing money in the future. We believe more corporate decisions will be driven by large amounts of data. None of these predictions is contrarian. None of these predictions is reckless. Sometimes, the simplest ideas are the best.
The future will be the same, only more so
Predicting the future really can be a fool’s errand. Sometimes it’s best to not even try. It’s important to realize that many trends take a long time to play out. It’s also important to realize that most of today’s current events will not have an outsize impact in the history books.
We invest because we are natural optimists; society will continue to grow and we will benefit by having a stake in the means of production. We believe our funds are positioned, for the long term, accordingly. As Franklin D. Roosevelt said, “The only limit to our realization of tomorrow will be our doubts of today.”